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Thursday, August 30, 2012

The Co-op Controversy

Co-ops seem to be popping up everywhere and is quickly becoming a hot topic in the babywearing community. Co-ops have always existed, but I think Facebook and other on-line communities are making them have a much wider audience and much greater impact.

Recently, in attempt to deal with an ongoing problem with unauthorized co-ops, BabyHawk made an announcement that they will no longer honor any product warranties for products that are not sold by an authorized retailer. This has spurred quite a debate in the community between people that believe co-ops are harmless and the companies that are trying to prevent them.

This blog post is an attempt to shed some light on this issue, explaining what kind of co-ops these business are trying to protect their products against. I will do my best to explain this as thoroughly and to the best of my understanding as I am able, but I am sure there are aspects I will miss or could explain better. I will edit and add anything that is brought up that appears to be a valid piece that may have been overlooked.

What is a co-op?

Co-op is a short term for a "cooperative".

A cooperative is an autonomous association of persons who voluntarily cooperate for their mutual social, economic, and cultural benefit.

When we are talking about co-ops, we are referring to a large group of people that group buy a product in order to receive a price discount.

Two kinds of co-ops

For the purpose of this post, there are generally two kinds of co-ops you will find. The first are co-ops sanctioned by the manufacturer of a product and the second are done by an "authorized" retailer or third party and are not legit.

Companies will often have co-ops to help them grow their business. Co-ops are a great way for a small business to get their band and product to the public. They are also sometimes used to clear out discontinued products, colors or prints. Some companies do allow their retailers to run legit co-ops, but most make all their retailers sign contracts that agree not to do co-ops and to follow the approved pricing. Legit co-ops can be a great way for people to get a discount by buying in bulk and can be a good thing for everyone.

Illegitimate co-ops, the ones that will will be talking about in this post, are when a retailer or other party sells the products at a greatly reduced price, far below retail cost. This is done "under the table" without the companies consent and often directly in conflict with the wholesale agreement they signed. They usually make only a fraction of a profit per item counting on a high volume of sales to bring in their profits.

These co-ops should not be confused with some of the small buying co-ops that people will put together in order to get a discount by buying in bulk. This is a retailer or someone who applied as a retailer under fraudulent circumstances that is grossly abusing the status they have been granted by selling products at a significantly lower cost in order to turn a quick profit.

Just for clarification, small co-op groups run by people, not "retailers", that participate in group buying to get a discount is not the problem. These types of co-ops are approved by a company when their business model includes co-ops. It is not the same as a retailer not following their contract. I would go into more detail, but that is what the remainder of this post is about.

So what is the problem?

Sales are great right? Everyone loves a discount! So what is the problem with getting something for a great price? Well there are risks when you obtain something under fraudulent circumstances, whether you were aware of it being fraudulent or not.

One of the biggest things people need to be aware of, especially with certain larger brands like Ergo, is that knock off
carriers are produced and sold through co-ops and rarely through
legitimate stores. This does not mean that a store couldn't buy knock
off carriers or that all co-ops sell knock offs, but it is not likely that a legit business would take that kind
of risk just to make a few extra dollars. Companies have to protect and
separate themselves from knock offs, especially since they are often
made with inferior construction and materials. The best way for them to
do this is to not allow their products to be sold through co-ops and to
only honor carriers purchased through an authorized retailer.

That is exactly the reason why many companies will not honor warranties for their products unless purchased by an authorized retailer. But if it's not a knock off, the product must come from an "authorized" retailer right? Yes, technically the company authorized them and sold them the products. But once the retailer breached their agreement, they are no longer "authorized" and the contract with the company is no longer valid. If a company has a reason to suspect a retailer has breached their agreement and devalued their product, they are within their rights.

Many of these "retailers" are not retailers. These co-ops are often being run by people or "businesses" that are disregarding the regulations and standards that other retailers must comply with. This is even more important when dealing with imported products, but I will go into that a bit later.

Who does it hurt?

Buying a product at 40% off may not seem like it's hurting anyone, especially when the "retailer" is willing to sell them for that price. But in reality, it doesn't stop there. Saturating the market with under priced carriers hurts everyone.

Selling a low priced carrier does not stop with the person that purchased the product. It has a trickle affect that really impacts the entire market. Some people will buy the carrier and love it, so they will keep it for a year or two before selling it to someone else. But some people will decide not to keep their carrier and sell it right away. This swamps the market with cheap carriers. Now the mom that was trying to sell a lightly used one at a loss can't even sell hers because there are brand new ones for sale at 40% off retail. Retail sales drop for that carrier because no one wants to pay full price when there are plenty available or another co-op starting in a month or two. Eventually the retailer clearances their carriers because they aren't selling and stop stocking that brand. Now the parent company has lost their retailer and the orders they were placing. Sure, they had the initial large sale, so they still made their original profit from the co-oped carriers, but now their product has lost value and people don't want to pay the full retail price.

Can you see how it affects everyone? And most of those retail shops are small family owned businesses, many owned and run by work at home moms (WAHMs). These business count on the products they buy having value in order to stay open. Even a small loss can be enough to close a small business like that.

The damage done by a co-op is even worse if the products are knock offs. Flooding the market with knock offs damages the consumer confidence in a product and can greatly impact sales. Some of you may be aware of some of the damage done when a huge amount of fake Ergos were imported and sold in the US a while back. Companies like Ergo, Beco, Moby, and other larger brands are especially at risk for being copied and reproduced. These products are often made with inferior construction and materials and can often be unsafe. Find out more about fake carriers on the BCIA website.

The companies that manufacture a product do so at a great cost. It takes them time and significant investment to grow their product and they can only exist if their product has value. People will happily pay the retail price when they know it is an investment that they can sell down the road. But if the market is swamped with cheap carriers, no one will want to pay retail because that product is no longer worth that much. That is why many companies, like Sakura Bloom, go through great lengths not to discount and undervalue their products. It is out of loyalty to the brand they have created, their customers, and their retailers that they do their best to maintain the value of their products.

Maybe you're not worried about the value of your carrier and aren't concerned about the impact of co-ops on businesses, you just know you can't afford full price and so why not? But devaluing these products actually impacts the entire babywearing industry. When co-ops flood the market with cheap carriers, it makes is harder for existing
companies to stay in business or grow and makes it even harder for new
brands to emerge when the price of baby carriers have been undervalued
to a point where they can't charge a fair price for their product. Also, if stores can't sell the baby carriers they purchase, they will be forced to stop carrying them, which means people will have less access to baby carriers and babywearing in general.

I also want to add that this is not an issue that solely affects the babywearing industry. The same can be seen with many other products, including cloth diapers, designer bags, strollers, etc. In all cases, co-ops like these can undervalue and damage the product line involved and impacts the market as a whole.

Apples to oranges

So what's the difference between supporting a WAHM that runs legit retail business or one that runs a co-op without having an actual retail store?

When a retail store, whether on-line or brick and mortar, decides to carry a brand, it is an investment. They have to carefully select what brands they choose to carry because stocking a product is costly. Retail stores have overhead expenses to be in business, with brick and mortar significantly more than on-line shops. Stocking their shelves with a products in a variety of colors and sizes for people to choose from is necessary to attract customers, but comes with a significant up front cost. So a retail business must be careful when choosing what products to stock since something that is sitting on a shelf is costing the store money and keeping them from buying more products.

When a person or business runs a co-op like the ones we have been talking about, they have little to no upfront costs, no risk, is able to easily attract a large number of sales, and get paid in full before ordering. People mistakenly believe this retailer is doing THEM a favor by offering such a great deal, but in actuality, these are quick, easy sales that allow them to turn a quick profit. Purchasing from a co-op like this does not support small businesses or work at home moms, it is one person profiting at the expense of other small businesses and work at home moms.

What about pre-orders?

Like co-ops, pre-orders are done when a retailer allows customers to pre-order a product for a discounted rate. These are especially common for international orders that have to be imported since the shipping cost is much higher.

Customers usually can not justify ordering directly from overseas since the shipping and import costs for one item makes it not cost effective. A retailer will often open a pre-order when placing international orders. This lets the customer to choose the exact product they wanted which allows the retailer make sure they import the products their customers actually want to purchase. The cost for both the retailer and the customer to import a product is then shared, and retailers will often pass this discount on to the customers as a thank you for pre-ordering and waiting for their product to arrive.

So a pre-order is a discount on shipping and import costs and not the same as selling a product slightly above wholesale. Both the retailer and the customer benefit from this arrangement and the overall market is not affected by these slight discounts.

International products

One of the biggest issues with co-ops applies only to international orders. A retailer has certain responsibilities when they import a product to the US. There are regulations that require a retailer take certain steps to make sure a product is safe and able to be tracked in the event of a product recall. All baby carriers sold in the US must have product registration cards as well as tagging that identifies the model number, manufacture date and manufacture location. International manufactures often are not in compliance with the US regulations, so it is the responsibility of the retailer importing these carriers to meet these requirement. This is done at the cost of the retailer, while many co-ops are knowingly ignoring these regulations because they are not worried about the consequences. Not being an actual store with overhead and inventory, there is little motivation for them to meet the regulations that apply to retailers.

What to look for

For the reasons listed above, it is important that a consumer is careful when they are purchasing from a co-op, especially to make sure that you are not getting an inferior imitation and that your manufacturer warranty will be valid. But how do you tell the difference between a legitimate sale and an unauthorized co-op? The simplest way... if it's too good to be true, then it probably is.

Unless a brand is changing to a new model or discontinuing a specific
print, it is very unlikely that you will see sales of 20%, 30% or 40%
off retail. There are some exceptions of course, like Black Friday and Cyber
Monday events. But most of these sales are easily confirmed on the
parent company's website and will be available at many, if not all,
authorized retailers that carry their products.

One of the quickest ways to determine if this is an actual store or someone with a resellers license that is selling products under fraudulent circumstances is to look at the "store" itself. Do they carry a stock? Are there a variety of carriers available for purchase? Do products ordered ship right away or do they fill all orders on a drop ship only basis? Though many legit companies offer certain products through drop shipping, but it could be a warning sign if it is the only kind of products they carry. If it looks like a store that you can actually buy from, then it is more likely to be an authorized sale. But if it looks like a blog, facebook group or somewhere that only does "pre-orders", "co-ops" or drop shipping, it is less likely to be a legit run retailer.

You may occasionally find a store that has a product on clearance to make room for something else, but some companies like Sakura Bloom even discourage that kind of discounting, asking instead that carriers be sold back to the parent company. Items available for clearance will also always be in-stock carriers and never a co-op or pre-order.

If you are concerned that a company may be running an illegitimate co-op, check the manufacturer's website and see if they are an authorized retailer. If they do in fact show up, contact the company and ask if this is an authorized sale. If it is, you can confidently buy knowing that the product you are buying is safe and will have value.

By any other name

Because BabyHawk and other companies are coming out against these unauthorized co-ops, many co-ops are quickly trying to re-name themselves. Some are saying "co-op" is just the word they are using, but they are actually just "trying to offer carriers at the best price they can". But if this price is against the wholesale agreement they signed with the company, they are running an unauthorized co-op no matter what they say or call it.

Making babywearing available to everyone

One of the things these people will sometimes say is that they don't care about money, they are just trying to make babywearing available to everyone. While I believe some really are just in it for the quick profit, I do think there are some people out there that do have good intentions and do not realize the harm they are actually doing. But offering people carriers far under market value does not help the babywearing industry, it hurts it. It makes is harder for existing companies to stay in business or grow and makes it even harder for new brands to emerge when the price of baby carriers have been undervalued to a point where they can't charge a fair price when they enter the market.

Almost all of the people involved in the babywearing community are passionate about babywearing and want it to be available to everyone. Many of the retailers and companies support local babywearing groups and work with individuals to help them find a carrier they can afford. Sometimes this means a payment plan, sometimes it means buying clearance, returned, or even used carriers, sometimes this means helping a "customer" find a way to make their own.

Babywearing should be available to everyone, but that does not mean carriers should be sold for less than they are worth. Jan Andrea of Sleeping Baby Productions is someone well known and respected in the community for her passion about babywearing and helping make affordable slings available to anyone. Here's a great quote that was posted on the Sleeping Baby Productions Facebook page about this very topic:

"I love a bargain, and I know a lot of other people do, too, but... If you buy something from a co-op that's priced way below retail, you're not merely getting a bargain. You're also helping to undercut the small businesses who do follow pricing guidelines and abide by manufacturers' contracts... businesses that, in this field, are usually run by work from home moms just like me. Even "large" manufacturers in the babywearing world are moms -- there are no millionaires in this business (believe me!). I've heard of at least two co-op directors recently who fraudulently applied to be vendors, planning to resell at practically wholesale prices. Yes, absolutely, this appeals to the bargain-hunter in all of us... but I hope people will consider the fact that this is taking sales away from moms who are just trying to make a living promoting babywearing.

And before you say "but I can't afford X carrier at retail!", please remember that in most of the world, mothers make do with a piece of cloth... and that's really all you need. We get all worked up about the latest wrap woven from unicorn hair by fairies, but honestly? In the end, it's a piece of cloth. You don't *need* X carrier to babywear, and if you can't afford X carrier at its market value, it's really not the end of the world. You can still babywear. Or you can get X carrier second-hand, or do a payment plan with a legitimate vendor, or make your own. Just don't imagine that when you buy from a co-op vendor, there are no victims, because there are -- moms like me, who are doing their best to help other parents wear their babies, and make a halfway decent living doing so."

NuzzleMe Creations is another babywearing company that started the Feel Good Child Carrier Movement. Companies participate in giveaways and fundraisers to help people. Our store has even loaned out a carrier for a mama to use with her preemie until her baby is big enough to use the carrier she originally purchased. There are lots of companies out there doing what they can to help people afford babywearing, but it must be done in a way that allows the babywearing industry to grow and flourish.

My hands aren't clean

Before I understood the impact of co-ops like this, I will admit that I participated in one before. It wasn't for baby carriers, but it doesn't matter. I also accidentally under priced a product when I first opened not realizing the costs involved in importing. But we learn. Our awareness changes. It's what we do once we have that information that is important. Now I do what I can to help people out without undercutting the products and brands I am privileged to carry.

Thank you

Thank you for taking your time understand this topic more thoroughly. I truly believe most of us want to continue to see the babywearing industry thrive and together we can keep it strong.

7 comments:

In all legality, a co-op MUST be a registered business in order to operate. Many co-ops charge a minor fee to participants for time spent organizing and placing orders. That is profit, that is the definition of a business. Many companies actually do allow co-ops if you ask. The babywearing community is well guarded in that respect, specifically for the reasons you mentioned. However, there are MANY MANY brand name products that are offered at co-op pricing, that will willingly and knowingly offer discounts to groups buying in large numbers. But just because a co-op has its business license does NOT make it fraudulent. Just because a co-op is a business and is not listed as an authorized retailer does not make them fraudlent. Many companies have two price sheets. One for retailers and one for wholesalers. A retailers price sheet is typically 50-60% off retail price. Retailers are bound by agreements and typically must follow a MRP (minimum retail price). A wholesale price list is given at 30-40% off and is not generally bound by a contract or MRP, specifically because they are not listed as a retail buyer. Wholesaling requires a business license by most states guidelines. It's not fraudulent to obtain wholesale pricing and resell within that wholesale price point.

I run a co-op, so I am bias, I will admit that. But every single business I contact I make that point obvious, I make my intentions very clear. Few turn me away, many offer wholesale pricing instead of retail pricing which is what I expect.

My goal is to create brand awareness. I don't run co-ops for the same brand back to back. I maybe repeat brands once a year, if that. This is to give people an option to try out new items without the risk of retail pricing. I want people to go to companies because I don't have a co-op going, I want them to buy an item at discount and then spread the word about how awesome that product is to their friends.

I know that's not how all co-ops are run and you do make truly valid points in your article, but I just thought it needed to be pointed out that not all co-ops that have business licenses and no retail store are fraudulent or obtain discounts under fraudulent means. There are more businesses than just retail businesses.

Oh please... as a one income family, I must cut corners in order to survive. Do I have a "knock-off carrier"? No,I bought a Boba, through Boba. Do I buy toys, diapers, etc through co-ops? You bet I do. If I didn't, we wouldn't be able to afford a lot of things. Do I have a business license? Yes, I do. Do I buy things to resell? No, I'm a WAHM and I sell the wares I personally make.

In response to the first Anonymous poster, I am glad you run legit co-ops. I am not sure if you read the entire article, but I made it clear that those are not the kind of co-ops I am talking about. I am specifically talking about co-ops run without the parent company's authorization. As a retailer, I am behind the scenes hearing the companies talk about their struggles with preventing co-ops that are damaging their brand. They are actively trying to stop them and do when they are able to, but most are done quietly, without using the business name they used to apply for a vendor so that it is harder to figure out which orders to stop and which are valid retail orders. These companies have specific wording int heir contracts against co-ops at any discounted price and all retailers must follow the retail pricing determined by the company. There are companies that allow co-ops, but the ones I am referring to do not and these co-ops are being done fraudulently.

To the second Anonymous poster, I am glad you are able to participate in co-ops. No one is against you finding a good deal, but you should be aware if it is an authorized deal or not. It might not seem like a nig deal for one family to order 10 cloth diapers, but what happens when that co-op has 5000+ FB followers and even 500 of those people buy 10 diapers? Some might buy even more, especially if it's a good deal. Some will byu because they know they can sell them on Diaper Swappers for a profit themselves. What kind of impact is there on the brand when the market is flooded with 5000+ cheaply bought diapers? If the company allows their diapers to be co-oped, maybe they want those diapers out there to the market, then that is a valid choice they have. But if a company does not want those diapers to be out there at that price, they have the right to tell their retailers they can not do that. Anyone that carries their brand or becomes an "authorized" retailer through them should follow the agreement they signed. If they don't, then that is fraud.

That is the point of this post. Not to say don't participate in co-ops. I participate in an organic produce co-op. Co-ops can be great. But they can also be damaging to a brand by flooding the market with undervalued items. Some of these co-ops being run are knowingly selling brands that do not allow co-ops and when these are being done on-line with a following of thousands and thousands of people, these co-ops can cause an impact on the market if even only a small percentage of them buy the products.

Great article. I don't own or run a coop but I do belong to MANY of them. HOw are we to know when a coop is offering something that they shouldn't?? We really don't have a clue when something is being sold through a coop that shouldn't or that they have not been authorizied to do so.

To my knowledge, NONE of the coops I purchase through have sold anything they shouldn't. THere are more great and honest coops than shady, bad ones , in my opinion.

The small local co-op groups are usually not a problem. There is one here and the people that run a co-op contact the company directly and find out if they allow them and what the minimum order would be. Different people run each co-op depending on a product they are interested in and none of these people are trying to make money or are retailers. These kind of co-ops are authorized by the companies and are actually a good way for people to save some money and the company to get their products out there. But you will not find many if any major cloth diaper or baby carrier companies agreeing to sell to a co-op. It's usually smaller companies trying to promote their products or a company that isn't concerned with or affected by co-ops.

The problem is with the larger on-line co-ops where someone is only able to sell the products at that low of a price because they obtained them under fraudulent circumstances. Most companies state clearly in their wholesale agreement that all their retailers must sell there products at a certain price and may not sell them on ebay or to co-ops. Some of these large on-line co-ops are obtaining these products under fraudulent circumstances because they are not intending to follow the contract they signed.

The local co-op groups are usually safe. They are done with companies that are okay with the small number of products being sold at a discount. The local one near me has a little over a hundred members with only a small number of them ordering from each co-op that is run. It's the huge on-line co-ops you can find that can really be an issue. For example, I was recently told about a co-op running on FB where the "retailer" was offering baby carriers far below retail pricing. That group had over 5000 members, so you could imagine how many carriers she would sell if only 10% bought from her. There are probably much larger on-line co-ops out there for cloth diapers and other products and the potential damage caused by undervaluing a product is hard to dismiss with groups of that size and reach.

Again, the simplest way to know if a co-op is legit is to contact the company. Even if they aren't aware of a specific co-op order, they can confirm that they allow their product to be sold at that price and to co-ops.

Oh, and I also want to add that I agree with your last statement, that there are more honest co-ops than there are shady ones. Like I said before, the problem is the reach and damage that can be done by these HUGE on-line co-ops. Small local co-ops are not likely to sell 1,000+ cloth diapers or 250 pairs of shoes. So it's really is this specific kind of flood the market with cheap products and move on "retailers" that are the problem. When they have no real store or inventory, they they have no reason to care if the brand maintains value, they just move on and sell the next style of baby carrier or cloth diaper.

Thank you for taking the time to reply. I hope my answers were helpful.

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